Netflix Falls as Barron's Warns: 'Buyer Beware'

Shares of Netflix slid Monday as the list of those questioning the future profitability of the video rental company grows.

Barron's assigned a stock rating of "IB," for Netflix, short for "investors, beware," saying the company will have a difficult time maintaining profit margins if studios demand more money to access their libraries.

Netflix's stock has more than tripled over the past year and studios that allow access to their archives have taken note. Whether Netflix, a service that has garnered a massive following, will be able to charge more for its services will determine how badly margins will be squeezed. One studio executive went so far as to call Netflix 'cannibalistic."

Netflix CEO Reed Hastings said in a widely publicized op-ed last week that margins are not under threat. Hastings took the unusual step of rebutting pessimistic views in a point-by-point article following the most recent critique by portfolio manager Whitney Tilson.

Any stand-off between Netflix and the studios will open the door to competition, like Apple and Amazon.com, who may be willing to pay more for content, wrote Barron's Neil A. Martin.

Amazon.com Inc. has a movie rental service, Hulu.com allows people to watch television shows and movies for free (though they must watch commercials or pay a fee) and Apple Inc.'s Apple TV offers its own catalog of movies and television shows (Apple TV also streams Netflix).

And, according to Martin, of the 50 top grossing films of all time, Netflix Inc. offers seven, compared with Apple's 32 and Amazon.com's 23.

Martin, like others, also noted the departure of Netflix Chief Financial Officer Barry McCarthy this month, after he sold a majority of his shares in the company.

Still, said Martin, even though Netflix has expanded its subscriber base 50 percent this year, its customers only account for 17 percent of U.S. households, meaning the Los Gatos, Calif. company still has growth potential.

Shares of Netflix slid Monday as the list of those questioning the future profitability of the video rental company grows.
Barron's assigned a stock rating of IB, for Netflix, short for investors, beware, saying the company will have a difficult time maintaining profit...